Richard Hilgert, a Chicago-based analyst with Morningstar, Inc. said an IPO could be a major complication for Fiat and Chrysler in the long-run, making it difficult to merge the two companies into a single, global auto maker.

“Fiat wants to own Chrysler 100%,” said Mr. Hilgert, not split its ownership stake in a public offering. A full merger is important because Chrysler without Fiat, and vice versa, the two companies lack the scale necessary to compete globally. The technology required to meet fuel efficiency mandates in the U.S., Europe and China is so expensive that even the biggest auto makers are straining. Small and medium-sized regional auto makers are struggling to manage, especially those that have a big footprint in Europe.

Fiat CEO Sergio Marchionne’s rationale for scooping up Chrysler out of its government-led bankruptcy was to combine vehicle design and engineering operations and produce cars that could be sold through Fiat and Chrysler dealerships globally. Fiat had no meaningful presence in the U.S. market before it took control of Chrysler. The Obama administration seriously considered letting Chrysler liquidate because its prospects for surviving against larger rivals seemed so dim. The company’s resurgence — promoted by director Clint Eastwood in a controversial ad aired during last year’s Super Bowl — has burnished Mr. Marchionne’s already substantial reputation.

Now, Mr. Marchionne faces at least the possibility that he will have to fight with hedge funds and other investors to acquire shares in an IPO, unless he can persuade the UAW health fund trustees that he’s prepared to pay a price they can’t get from the open market.

The UAW has a direct interest in seeing Chrysler achieve larger scale and better protection from the cycles of the U.S. market. “The UAW, they see a benefit in Fiat holding 100% in Chrysler,” Mr. Hilgert said. “Without Fiat, Chrysler is no longer a global company.”

Chrysler profits look solid today, because the North American market is rebounding and Europe is a mess. But in the auto business, what goes up inevitably comes down. Chrysler’s 30-year history of careening from profitability to bankruptcy and back again is proof of that. Read More »